Is the country?s business policy environment turning Sinophobic, or is India building up bargaining chips in its trade negotiations with China ? Analyse this: on the issue of safeguarding national security and correcting an ?alleged? unfair trade advantage, Chinese companies have been of late denied access to some juicy deals in power and telecom?two of the country?s biggest?and fastest-growing sectors.
But policymakers and experts are clear this is necessary to correct a huge asymmetry in trade relations between the two countries, which India needs to correct. India has a $22-billion trade deficit with China as on March 31, 2009, 20% of India?s total deficit.
The brouhaha around Chinese telecom equipment makers Huawei and ZTE, awaiting security clearance for orders already sold to private operators like Airtel and Vodafone, has virtually been crystallised into policy, with state-owned BSNL recently barring the Chinese companies from bidding for its 55-million telephone lines, a Rs 2,000-crore contract. Ditto for government-run power major NTPC, which has tightened heat emission norms in its over Rs 19,000-crore contract for supercritical boilers, apparently to keep Chinese makers like Dongfang Electric and Shanghai Electric Power at bay. Of course, NTPC says the clauses do not target any country and aim at promoting better technology.
And this, when half the dozen odd telecom networks and over 75% of all new thermal power capacity added in the last two-three years is powered by Chinese equipment.
There are more like PowerGrid putting in a clause that favours domestic companies. A top-level official at the finance ministry explained the flurry of meetings across ministries? the primary dispute is on trade with the security concerns overlaying it. On the second issue, the government (basically home) has informed all economic ministries that any projects or purchases must satisfy those concerns. This means it is up to the ministries to put in safeguards to ensure national interests are not compromised, instead of leaving it to home to take a call. At the other level, India is putting across its displeasure over the ?hidden? clauses that make it difficult for Indian companies in China to win bids in the manufacturing sector.
Pratap Bhanu Mehta, chief of prominent thinktank Centre for Policy Research, agrees: ?The Chinese pricing and control system is opaque. So there is some need to correct for those asymmetries.?
However, this does not mean there are no supporters for the Chinese line. Even though Bhel and L&T, two big domestic power equipment makers, have been vocal in their demand to level the playing field by imposing a stiff anti-dumping duty on Chinese manufactured goods, including turbines and boilers, the power ministry has opposed such these. Even power plant operators like Reliance Power, which has won three of the four ultra mega power projects that have been bid out by the government, swear by the cost-effectiveness of Chinese equipment. Not surprisingly, the heavy industries ministry supports the move to impose a 14% import duty on power equipment. PK Brahma, former power secretary said he had detailed meetings to correct the misgivings of the home ministry on this front. Network expansion plans for private telecom operators has been kept on hold and made expensive for BSNL, which has openly admitted to its hands being forced by the ?virtual policy? to only invite European biggies like Ericsson and Nokia. On Wednesday, the telecom ministry had requested a review from the home ministry and asked for a clear procedure for importing telecom equipment as it fears that the current stalemate is hampering the industry?s growth.
But as Icrier director Rajiv Kumar says, ?If China feels aggrieved, it can always take India to the dispute resolution mechanism at the WTO. Of course, India will have to give a commitment that it will abide by the decision.?
At its heart the trade dispute is over regional supremacy. India has begun to question if China is a market economy. China says it is and has a WTO membership to prove it. India feels otherwise and has pointed to the recent agreements it has sewn up with Sri Lanka that bars Indian companies from tenders in the island where China has put in money. Mehta says the security phobia helps to build up a bargaining position in the trade negotiations.